Complying with CPP rules for older employees can be a challenge
It is no secret Canada has an aging population.
In 2011, close to five million Canadians were at least 65 years old, accounting for almost 15 per cent of the population. Employment and Social Development Canada says it expects the number to reach 10.4 million by 2036.
Today’s seniors are not all retiring from work by age 65. Statistics Canada reports that in 2012, 12 per cent of seniors (65 and older) had jobs. Figures from the Canadian Centre for Policy Alternatives indicate the number may be even higher. The research institute’s findings show that in 2012, 24 per cent of people aged 65 to 70 were still working, up from 11 per cent in 2000.
With these changing demographics, it is likely payroll departments will have to deal with issues affecting an aging workforce, including determining whether to deduct Canada Pension Plan (CPP) contributions from their earnings.
Since Jan. 1, 2012, the federal government has required all workers 60 to 65 to pay CPP contributions if they are working in pensionable employment even if receiving a Canada/Quebec Pension Plan (C/QPP) retirement benefit.
Employees 65 to 70 receiving a C/QPP pension can choose whether they want to contribute, but must fill out a form called a CPT30, Election to Stop Contributing to the Canada Pension Plan, or Revocation of a Prior Election, indicating their choice. If they do not submit the form certifying their desire to opt out, payroll must continue to take CPP deductions. No one contributes after age 70.
Prior to 2012, employees aged 60 to 70 who were receiving a C/QPP retirement pension did not pay CPP contributions once they showed their employer their pension award letter from the government.
Employers with older employees need to be aware of the changed rules and their role in following them, says Dian Hardiman, a senior programs officer in the Trust Accounts Programs Division of the CRA
"It is important that you have processes in place in your organization so that you are aware of your employees’ decision as soon as they make it." Hardiman presented a CRA webinar on the changes earlier this year.
The CPT30 form plays a crucial role whether an employee is opting to stop CPP contributions or to restart them. It has four parts: A (Identification), B (Eligibility), C (Election and certification) and D (Revocation and certification). Employees must complete the form, send the original to the CRA and give a copy to their employer(s). They should also keep a copy for their records and any future employers.
If an employee gives an employer a completed CPT30 electing to opt out of CPP contributions or to revoke an election, Hardiman says the first thing payroll should do is ask the individual whether this is the first time they have filed an election/revocation or whether the form is a copy of one they submitted to another employer.
"You will need to have a talk to your employee about this," Hardiman says. "Have a conversation and figure out if you are receiving the election or revocation for the first time or, if the employee has already given it to a previous employer and now you are just receiving a copy. Since the decision to elect or revoke is the employee’s, the CRA will not give you any information as the employer."
Hardiman advises payroll ask for a copy of the pension award letter from the government to ensure eligibility. Payroll must also check the date in part C. The date determines when the election actually takes effect. Hardiman says it should be in the same month the employee gives the form to payroll.
If it’s different, she says the employee must change it before resubmitting it.
While the CRA advises employers not accept post-dated CPT30s (for either elections or revocations), the agency says it’s OK for organizations to ask employees to submit the forms in advance if payroll needs time to meet cut-off dates or system input deadlines for stopping (or starting) deductions.
Payroll has to continue deducting CPP contributions (and paying the employer’s share) on all pays up to and including the employee’s last pay dated in the month shown on the form. In many cases, employers will have pay periods that overlap the end of one month and the beginning of the next. In that case, Hardiman says it is important payroll does not break up the final pay period and only deduct CPP from the part of the period that includes the month shown on the form.
Instead, payroll will have to prorate and adjust the final CPP contribution. "In these situations, you will need to check the amount of CPP deducted from the beginning of the year until the end of the final month shown in part C and adjust if necessary."
If payroll deducts CPP contributions after an election takes effect and realizes in the same year, Hardiman says they should reimburse the employee and revise its records. It may reduce its next remittance to the CRA by both employer and employee share.
If payroll does not realize the error until doing T4s the next year, Hardiman says it is essential payroll not adjust the amount of CPP deducted from the employee. She advises payroll report the adjusted pensionable earnings on the employee’s T4 in box 26 (CPP/QPP pensionable earnings) so the employee can request a refund when filing a personal income tax return. The employer can file a PD24 form to request a refund of its share.
If an employee says the election on the CPT30 form is not new and is a copy previously sent to the CRA and another employer, payroll must make sure the employee hasn’t since revoked that election before stopping deductions.
Payroll must also check to see whether it has deducted CPP after the end of the month entered in part C on the form. If so, payroll will have to correct this.
In some cases, employees who stop paying CPP contributions change their mind. They can if they are 65 to 70, receiving a C/QPP retirement pension, are employed in pensionable employment and receiving pensionable earnings.
To make the change, the employee has to complete parts A, B and D of the CPT30, give a copy to the employer in the month they sign it and send the original to the CRA. The CRA has placed restrictions on how often employees can opt in and out of CPP contributions, limiting them to only one election or revocation a year.
Hardiman again advises payroll to watch the date on the form. The date in part D must be in the same month the employee gives the form to the employer. If not, the employee must revise it.
Once payroll accepts the form, it must start deducting CPP contributions (and paying the employer portion) with the first pay dated in the month following the one entered in part D. Deductions continue until the employee is no longer employed by the employer, turns 70 or files to stop contributions.
If an employee already filed a CPT30 revocation with the CRA and a previous (or other) employer, but delayed giving it to the current employer, Hardiman says payroll begins to deduct CPP contributions as of the first pay dated in the month after the month the employee submits the form.
Employees in this situation can still contribute to the CPP by completing a form CPT20, Election to Pay Canada Pension Plan Contributions, and filing it with their personal income tax return. They would have to pay both the employee and the employer share of CPP contributions.
For year-end reporting for a year in which an employer receives a CPT30, Hardiman advises payroll ensure boxes 16 (CPP contributions) and 26 on the employee’s T4 agree with the period in the year when the employee was required to pay CPP. She adds payroll must not enter anything in box 28 (CPP/QPP exempt).
One situation payroll must sometimes deal with is a newly hired employee who says they have previously filed an election to stop contributions with a previous employer, but did not make a copy of the form or cannot find it. Hardiman advises payroll ask the employee to contact the CRA to request a copy . The employee should make a copy for the new employer and keep a copy.
"Until the employer receives a copy of the election, the employer has to continue to deduct CPP contributions," Hardiman says.
She admits this may cause complications for payroll. "Once the employee gets the election (and) gives it to the employer, you may find out that you will have to make adjustments. You realize that you have deducted CPP after the effective date, so you may be caught in a situation where you have to reimburse your employee and reduce your next remittance to the Canada Revenue Agency," she says.
However, this route may be preferable to possible penalties and interest for not making the deduction.
"If the employee says they elected and they are not able to produce a copy of the form and you don’t deduct CPP contributions and the employee never does provide you with a copy, you (may) find out at the end of the year that CPP contributions may be assessed."